Purchase of Commercial Properties

Commercial Properties are purchased with an intention to generate regular income flow. Commercial real estate includes office buildings, rental apartment suites, warehouses, gas stations, hotels, industrial and retail plaza units. Purchase of commercial properties is vital to businesses and affect their financial health as well.

Purchase of commercial properties tends to be more complicated than the transactions of residential property. Some examples of commercial properties transactions include tenants and their leases, service contracts and employment contracts of salaried workers. They are typically a part of commercial real estate transaction whether a person is selling or purchasing.
Due diligence needs to be exercised at every step for buying a commercial real estate. There are many factors involved here those are not present at the time of residential property purchase. Lack of adequate planning can lead to unscheduled costs, insufficient financing and potential environmental and other issues with off title searches including zoning, building and fire code compliance.

Steps Involved in Purchasing Commercial Real Estate Properties

Agreements of Purchase and Sale

Your Real Estate Lawyer will assist you by drafting, negotiating and analyzing agreements of sale, purchase and associated offers. They get customized as per the needs of the individual transaction to protect your legal interests.

Latest updates are also included in the agreements as and when needed. The Lawyer will also prepare a preliminary title review for you at the time of deal negotiation before drafting the final offer. The Lawyer will also offer independent legal advice to enable you to minimize your expenses, taxes and liabilities in the transaction.

Acquisitions

Whether you choose to deal with commercial, retail, industrial, mineral and agricultural property, make sure that the Commercial Real Estate Lawyer you select has expertise in the given area. They should do detailed title searches to make you aware of the existing encumbrances on the title such as by-laws, the right of way, easements, site plan control agreements, subdivision agreements, restrictive covenants. Off-title searches are also done which include hydro one, conservation authority, fire department, building department, zoning and much more.

Unpleasant surprises are minimized at closing time if the above searches are performed. It also allows you to make informed decisions.

Purchase from a corporation will involve searches against the corporate status and bankruptcy. Authorisation status for sale should also be confirmed with the vendor corporation.

In every commercial real estate transaction, the title of the property is investigated and reviewed. All agreement matters are also analyzed to be correct as per their representation. Your real estate lawyer will also review if the title is clean and all off title searches are satisfactory and the transfer transaction has taken place as mandated.

Title Review & Due Diligence

It is recommended to consult a Commercial Real Estate Lawyer before starting negotiations with the vendor to be clear on all property encumbrances. This helps to make sure that the property being purchased has a clear and marketable title. Title review typically includes review of all instruments registered on property title including the right of way agreements, site plan control agreements, subdivision agreements, municipal by-laws, liens, registered leases and development agreements.
Property surveys are reviewed by the lawyer and informed to you through a detailed report. The Lawyer also reviews adjacent property titles to make sure zero existence of Ontario Planning Act contraventions. Detailed off title searches are also done to make sure no outstanding payments exist on tax, water and other utilities.

HST and Land Transfer Tax

Harmonized Sales Tax (HST) legislation applicability needs to be checked on the commercial property being considered for purchase. It is advisable to consult your Commercial real estate lawyer for the HST legislation and make sure that accurate Ontario and Toronto land transfer tax is paid.
Personal Property Act needs to be checked for registrations.

Review Existing Tenancy Agreements & Leases

It is essential to review existing leases and tenancy agreements in advance to avoid any unforeseen issues at the time of closing of the purchase transaction. Any employment and service contracts related to the property being considered for purchase will also need to be reviewed.

Review Land Surveys and Bill of Sale

The next step includes a thorough review of the bill of sale and the statement of adjustments. The land survey is also reviewed if available. All documents are executed at the time of closing. Matters related to title, zoning and statement of adjustments are discussed with the purchaser. With this, the purchaser is fully informed on all the significant material aspects of the property being purchased.

Benefits of Purchasing Over Renting

Costs of commercial real estate properties have been escalating rapidly over the last decade. In many cases, buying properties make economic sense over renting them. As a commercial property owner, you will enjoy appreciation in the property price along with zero rent hikes. Entrepreneurs can also deduct the loan value, depreciation and mortgage interest from the taxes paid by the company. This option is not available if you happen to rent a commercial property.

Mortgage & Tax Implications

Consulting an accountant is advisable to make sure that your budget is made thoroughly keeping in mind the mortgage and tax implications.

Tax

Tax implications can be complex to navigate on your own, and it is here that hiring an accountant can help. An accountant is well-versed in the regulations applicable to commercial real estate deals. They will also help you plan for strategies regarding transaction financing and succession planning.

Mortgage

Obtaining mortgage approvals is not easy. High quality and clear banking statements may be required by the mortgage company to make sure that company profits are being retained within the company. Shopping around for the best deals and figuring out the percentage of the purchase eligible for financing are other factors which are important.

Commercial Title Insurance

You need to secure appropriate title insurance policy for all purchases of the commercial real estate. It is essential to get title insurance for all your commercial properties as they are very different from a simple residential property transaction.

Customized policies are taken as per the type and nature of coverage needed for your specific purchase transaction. You can also benefit from the business relationships which the Real Estate Lawyer has with various title insurance providers.